Scrutiny of Arms Exports and Arms Control (2013) - Committee on Arms Exports Control Contents


6  Organisational and operational issues

Export Control Organisation (ECO)

REMIT AND RESPONSIBILITIES

87.  The Export Control Organisation (ECO) is part of the Department for Business, Innovation & Skills (BIS) under its Europe Trade and International Directorate (ETID). It issues licences for controlling the export of strategic goods. This specifically means military goods, dual-use goods (civilian goods but with potential military use or application), products used for torture and repression, and radioactive sources. The ECO also issues trade control licences for the trafficking and brokering of arms and dual-use goods. The ECO has the following additional responsibilities:

  • auditing and ensuring compliance with Open Licences—this is done through regular company audits
  • reporting statistics about strategic export licence applications—this is done quarterly and is included in the government's annual report on export controls
  • undertaking a wide range of national and international outreach activities
  • participating in the shaping of worldwide arms control policies—through the international arms control regimes
  • working with other government departments on counter-proliferation activities
  • developing UK export licensing legislation—with other industry stakeholders and non-governmental organisations
  • providing help and advice to exporters—through a helpline, seminar programmes, rating enquiry service and database tools—including the Goods Checker and Open General Export Licence (OGEL) Checker.

88.  According to the ECO website the ECO plays an important role in focusing on global and national security issues, while at the same time balancing the needs of supporting businesses and encouraging competitiveness (which are the wider aims of BIS). It assists in delivering central government targets and other agendas to promote these aims. The main objective of the ECO is to control restricted exports and prevent the proliferation of weapons of mass destruction, while trying not to have a detrimental impact on UK business. The ECO attempts to meet these objectives by:

  • contributing to the government's cross-cutting counter-proliferation work—this is defined in the public service agreement target to 'reduce the impact of conflict through enhanced UK and international efforts'
  • working within the Foreign and Commonwealth Office (FCO) Departmental Strategic Objective, the aim of which is to make the world safer from global terrorism and weapons of mass destruction[139]
  • contributing to the BIS central purpose—to support businesses in an increasingly competitive business environment, both nationally and internationally (the ECO specifically feeds into the Departmental Service Objective by attempting to deliver free and fair markets—with greater competition—for businesses, consumers and employees)

89.  The ECO publishes quarterly reports and quarterly figures, including licensing performance statistics details. These statistics are measured against pre-defined performance targets. It also contributes to the Government's UK Strategic Export Controls Annual Report, which includes details of licensing performance statistics against defined targets.[140]

90.  I propose that the Committees recommend that the Government states in its Response whether the present remit and responsibilities of the Export Control Organisation fully meet the Government's policy objectives, and, if not, what changes it will be making.

CHARGING FOR PROCESSING ARMS EXPORT LICENCES

91.  In the Committees' inquiry in 2011 the Committees asked whether the Government had any plans to introduce charging to companies for the processing of licences. At that time EGAD had said that a statement from the Government confirming that they had no intention of introducing charging for licences "would be a great help to the industry, which is extremely worried about the rumours that there may be charges for licences."[141] When the BIS Minister, Mark Prisk, as part of the inquiry, was asked about the possibility of charging, he said:

It is not the intention of the Government to do anything that would be any more than seeking to look at the possibility of charges for the costs of the service. This is not intended to be some sort of back-door charge over and above that, and we would want to consult industry. We must look at the balance of these issues to see whether, in fact, there is a different finance model which would make more sense.[142]

However, the Government's Response to the Committees' 2011 Report said:

In the longer term, we are exploring an alternative model whereby ECO is funded by its customers. We consider that this might be the best way of ensuring a high quality licensing system in future as the volume of licensing activity continues to increase. We expect to hold a full consultation on this later in the year.[143]

92.  During the Westminster Hall debate on 20 October 2011, I said that "the Government are considering a proposal whereby that funding is taken out of public expenditure [...] and is made the responsibility of the arms exporting industry." I added there were possible "risks and dangers in going down that route because a crucial feature of the ECO is its clear independence" and that a charging mechanism "might change public perception from seeing the ECO as an independent watchdog to seeing it instead as a poodle of the arms exporting companies. That would be detrimental to the perception of our UK arms export controls."[144]

93.  In responding to the debate the BIS Minister, Mark Prisk, said:

Charging is an idea that we have explored with exporters, but only as part of the wider question of how we best reform the service to ensure we deliver the best kind of service without diminishing the quality of the controls that have been debated in this Chamber. What I would say is if and when—and I emphasise "if" and "when"—that subject becomes a formal Government proposal with a timetable, we will launch a full public consultation.

He accepted the point about the need to ensure that the consultation reflected the independence of ECO.[145]

94.  When the Committees asked the BIS Secretary of State, in the Oral evidence session for last year's inquiry, whether consultation on charging for processing licences would be taking place, Vince Cable replied:

We are not proceeding with this. We have decided not to introduce charging for the foreseeable future. The decision has been made, so the whole consultation process is not necessary. We may return to it, but for the foreseeable future we are not introducing charging.[146]

95.  When the Committees asked what had informed the policy decision, Vince Cable told us that there were "pros and cons" regarding charging. He said that there was a high administrative cost of processing licences and for the Department to maintain a high-quality level the user fee would have been a "sensible way" of doing so. However, there would have been an additional burden by introducing charging, particularly on small and medium-sized companies and the Government wanted to avert that.[147]

96.  The Committees' Recommendation on charging for processing arms export licences in its 2012 Report (HC 419) and the Government's Response (Cm8441) were as follows:

The Committees' Recommendation:

The Committees conclude that the Government's decision not to introduce charging for the processing of arms export licences is welcome as a charging system would, at least in the public perception, have compromised the independence of the Export Control Organisation from the arms export industry. The Committees recommend that such policy decisions by Ministers are made known to the CAEC wherever possible when they are made and not in the course of Oral evidence by Ministers.[148]

The Government's Response:

The Government will make every effort to ensure any future policy decisions are made known to the CAEC at or shortly after the time they are made.[149]

97.  The Government's Annual Report on United Kingdom Strategic Export Controls 2011 published in July 2012 stated:

In November the Government announced to exporters that, in relation to charging:

  • "The final discussions have taken place and we will not be taking forward the charging idea for the time being."

The Government will, however, be taking forward a number of service improvements that were identified during the informal discussions.[150]

98.  In response to that statement in the Government's United Kingdom Strategic Export Controls Annual Report 2011 the Committees asked a further question on charging for export licences. The Committees' question and the Government's answer were as follows:

The Committees' question:

What are the "service improvements" that were identified in the informal discussions related to charging for export licences?

The Government's answer:

As well as having licences processed faster, exporters made a number of detailed suggestions for the reduction of the regulatory burden for companies in applying for a licence.

The Export Control Organisation (ECO) has responded by launching a Service Improvement Project. This project is in its early stages, but has already resulted in a number of changes designed to meet exporter aspirations. Examples of these changes include:

  • a change to the End User Undertaking form, designed to eliminate the current problem where large numbers of licence applications are rejected and have to be reworked because the overseas customer has completed the form incorrectly. New forms will shortly be produced, with associated guidance in translated versions to help exporters explain the requirement to their overseas customers.
  • a new system for managing telephone calls into ECO, employing call and queue management, to respond to complaints from exporters that they are sometimes unable to get through on the telephone.
  • rewriting OGELs to comply with the Plain English Campaign's Crystal Mark, thus addressing feedback from some exporters that they find OGELs hard to understand. The first of these—the Military Components OGEL—has been released and others are in preparation.[151]

99.  I propose that the Committees conclude that it would be undesirable to make the Export Control Organisation financially dependent on fee income from arms exporters and that the Government's decision not to introduce a charging regime for arms export licences is therefore welcome.

PERFORMANCE

100.  The performance target for the processing of SIELs is to process 70% of applications within 20 working days and 95% within 60 working days.

Table1: Standard Individual Export Licences (SIELs) Processing Performance
2011 20102009 20082007 2006
Number finalised15,734 16,72314,187 12,7299,647 -
Finalised within 20 working days 66%63% 73%73% 79%82%
Finalised within 60 working days 95%94% 94%95% 98%99%

Source: United Kingdom Export Controls Annual Report 2011,United Kingdom Export Controls Annual Report 2010, United Kingdom Export Controls Annual Report 2009, United Kingdom Export Controls Annual Report 2007.

The Government has a target of processing 60% of appeals within 20 working days from receipt of all relevant information from the appellant and 95% in 60 working days. These targets do not apply to appeals concerning goods that are controlled solely because of UN Sanctions.[152] Of the 35 appeals decided in 2011, none fell in this category.[153]

Table 2: Appeals Performance
2011 20102009 20082007 2006
Appeals finalised within 20 working days 26%51% 68%69% 61%58%
Appeals finalised within 60 working days 71%93% 91%90% 100%83%

Source: United Kingdom Strategic Export Controls Annual Report 2011, United Kingdom Strategic Export Controls Annual Report 2010, United Kingdom Strategic Export Controls Annual Report 2009, United Kingdom Strategic Export Controls Annual Report 2007.

101.  The Committees' Recommendations on ECO's performance in its 2012 Report (HC 419) and the Government's Response (Cm8441) were as follows:

The Committees' Recommendations:

We recommend that the Government in its Response to this Report:

a)  sets out the specific steps it is taking to achieve its 20 and 60 working day targets for both processing and determining appeals for Standard Individual Export Licences (SIELs); and

b)  states whether it will be setting processing and determining appeals targets for Open Individual Export Licences (OIELs) and Open General Export Licences (OGELs) and, if so, what these targets will be.

The Committees further recommend that the Government in seeking to meet its arms export licence processing and appeal targets must comply in all cases and at all times with its arms export control policies as stated in the relevant legislation and in the Consolidated Criteria, and the Committees wish to be assured by the Government in its Response to this Report that this will be done.[154]

The Government's Response:

a)  The Government has a programme of service improvement in the field of export licensing. We are pleased to be able to inform the Committees that both the 20 day and 60 day processing targets were exceeded during the first six months of calendar year 2012.

b)  For the reasons stated in paragraph 3.8 of the Government's Annual Report on Strategic Export Controls we do not set targets for the processing of applications for OIELs or OITCLs. However the Quarterly and Annual Data Reports available on the Strategic Export Controls: Reports and Statistics website (http://www.exportcontroldb.bis.gov.uk) do contain information on the number and percentage of OIELs/OITCLs processed within 20 and 60 days, both in total and broken down by destination. There is no application process for OGELs—in most cases exporters are able to use them immediately upon registration—and so it is not appropriate to set a target.

There is no appeals process for open licences. If an application for an OIEL is rejected, or if an exporter's registration for an OGEL is suspended or revoked, that exporter may still apply for SIELs for the transactions concerned.

The Government can confirm that it will continue to comply with its export control legislation and policies in seeking to meet its targets on licence processing and appeals.[155]

102.  In response to the Government's United Kingdom Strategic Export Controls Annual Report 2011 published in July 2012 the Committees asked three further questions relating to the performance of ECO. The Committees' questions and the Government's answers were as follows:

The Committees' question:

Is the performance target for SIELs and SITCLs "to provide a response" within the specified number of working days, as stated twice in the text, or for the Government's decision on the application to be "finalised" as stated in Table 3.8? If the latter, will the text be corrected in future Annual Reports?

The Government's answer:

It is the latter—to be "finalised". The text will be corrected in future reports.

The Committees' question:

What specific steps is the Government taking to attain its target of finalising its decision on 70% of SIEL applications within 20 working days?

The Government's answer:

The Government's objective is to make improvements to the efficiency of the export licensing process on an ongoing basis, driven by customer feedback and by suggestions from front line staff. In particular, we introduced a package of small changes to the SPIRE system earlier in the year. These, together with the ongoing Service Improvement Programme, have had a strongly beneficial impact on productivity. This has been reflected in a strong performance against the 20 day target, which is currently running at a year-to-date figure for 2012 of 71.6% (figure as of 9 October 2012) as opposed to an outturn of 65.4% in 2011.

The Committees' question:

Why has the number of SITCL applications processed within the target of 20 working days fallen to 45% in 2011 from 60% in 2010?

The Government's answer:

In 2011 the Government observed a sizeable increase in the number of both SITCL and OITCL applications, principally driven by demand for trade licences from the expanding UK maritime security sector. This new sector, for which Britain is already considered a world leader, requires trade licences to transfer controlled goods in order to provide armed maritime anti-piracy services. Because this was a new area, with new risk paradigms, the initial batch of trade licence applications took longer to process while officials and Ministers carefully considered the risks involved.[156]

103.  When considering the status of the Export Control Organisation (ECO) within the Department for Business, Innovation and Skills (BIS) EGAD states that whilst ECO and its advisory departments are to be applauded for their on-going efforts to try to keep the UK's export control system functioning with some semblance of order and normality, the whole system continues to struggle to cope with the sheer workload and pressures placed upon it, with both the ECO itself, and its advisory departments having to operate with reduced resources. Whilst EGAD recognises ECO's efforts at identifying systemic efficiency enhancements to alleviate problems within ECO it is not convinced that this is the total solution to its "current predicament" and believes that "more significant changes are needed" to meet the concerns of all stakeholders and the needs of industry.[157]

104.  EGAD highlighted that companies had been reporting considerable delays in the processing of export licence (and[158]) applications with regard to potential sales to countries in the Middle East and North Africa. It said that there was a lack of clarity of policy within the Government, and officials were still having to seek guidance from Ministers on individual export licence and F680 applications. EGAD believed that as a result of the inevitable delays that this uncertainty causes in the minds of officials, UK firms were at risk of losing commercial business by default to overseas suppliers who could pick up and fulfil contracts seemingly without any similar impediment. Delays were damaging and the UK Government needed to move faster through the application consideration process. When EGAD conducted a survey of its members, and those of INTELLECT's[159] Joint Electronics & Telecommunications Security Exports Coordinating Committee (JETSECC) in July 2010, of firms' practical experiences with the UK's export control system over the previous 12 months, those companies who replied identified that they had lost the ability to compete for potential overseas export business worth at least some £35m purely and exclusively down to export licensing (and F680) processing delays. EGAD had no evidence to suggest that this situation had improved. EGAD said that this situation is particularly testing for UK small and medium-sized enterprises (SMEs), who do not have the spare resources to pursue potential business opportunities for which the necessary licence and F680 approvals are proving to be problematic.[160]

105.  EGAD also had examples where larger, multinational companies have used production facilities overseas rather than those in the UK to bypass UK arms export controls—resulting in the loss of UK jobs. EGAD believed that if companies concluded that the UK export licensing system was adversely affecting their ability to export from the UK this could jeopardise the commercial viability of their operations in the UK.[161]

106.  EGAD considered that a large number of the 17,000 Standard Individual Export Licence (SIEL) applications processed each year by ECO could be reduced to 10,000 a year by replacing them with open licences. This would reduce the workload of ECO.[162]

107.  In supplementary evidence EGAD provided us with an example of the problems faced by one of its members in the advice it had received from ECO. The company had applied for a SIEL but was advised by ECO to use an OGEL. The company followed the ECO advice because, as stated by the company, "the ECO knows more about this than we do". ECO checks the goods and the country that the goods are being exported to, but in this case the OGEL issued did not cover the country to which the goods were being exported to. Subsequently when the goods arrived at the UK port for export they were seized by the Border Force as having been presented without an appropriate licence. EGAD said that this was "embarrassing and potentially costly for the company concerned, inconvenient for their customer and worrying for industry more broadly". The company now faces the possibility of criminal sanctions resulting from following the advice of ECO. EGAD also provided an example of another company being sent a letter from ECO, following the application of a licence to export goods, stating that no licence was required. Fortunately, the company queried the contents of the letter and ECO withdrew the letter and processed the licence. If the company had not queried the letter it could have resulted in an incidence of unlicensed export of goods. EGAD stated that "errors of this magnitude are increasing and are a genuine cause of concern" and said that it was its belief that "they are indicative of pressure upon the ECO with which it is currently ill equipped to cope.[163]

108.  In further supplementary evidence EGAD provided us with the results of a survey of its members into the services provided by the ECO. The survey covered the period from 1 October 2010 to 30 September 2011. 45% of EGAD members responded and covered: 1,129 SIELs; 286 OGELs; 187 OIELs; and 596 F860s. 50% of the members surveyed reported that they had been advised by the ECO to use an OGEL which would not, in the opinion of the industry's compliance officers, have been compliant for the export concerned. EGAD stated these "incidents of this type [...] are not isolated and pose a significant concern to broad sections of the industry, who are endeavouring to be compliant."P163FP163FP163FP163FP163F[164]

109.  When, in the Oral evidence session on 3 December 2012, the Committees questioned David Hayes, Chairman, EGAD, about the performance of the ECO he told us that:

One of the biggest issues at the moment affecting the Export Control Organisation overall is resource, coupled with the fact that the organisation itself is adjudged by a single metric—that of turning around 70% of standard individual export licences within 20 working days. That has achieved almost god-like status in the organisation, to the extent that every other activity that the organisation undertakes is subordinate to it, and those other activities suffer.

We have reached the stage where the organisation is processing something like 17,000 standard individual export licences a year, with resources adequate to probably slightly more than half of that figure. By definition, it focuses on the easy cases. The Arab Spring and the developing countries are, by definition, more difficult cases to judge. The organisation is undoubtedly aware that its biggest problem is the fact that it is processing too many of these, with a 98% success rate. If we could move only a small proportion of those over to open licensing, it would free up resources not only to focus on the more difficult cases but hopefully to process those both more quickly and more effectively, which is not necessarily the same thing. Instead of some of the resources being so closely focused on a single task, it could step back and take a strategic view as to what is the solution to the problem confronting the organisation, which is, in fact, that it is processing too many licences.[165]

110.  When the Committees questioned Mr Hayes on whether the members of his organisation had experienced other problems due to ECO resource issues he responded by saying that the lengthy appeals process was another example of his members experiencing problems. He also told us that the processing of clarification requests (previously called rating inquiries), where a company wants to know whether its goods are controlled or not, was another lengthy process. He said "We have got to the stage now where ECO staff are actually discouraging companies from putting in rating requests and saying to them, 'Why don't you just apply for a licence? At least we have to look at that.'"[166] When the Committees pressed Mr Hayes on whether he was receiving complaints from his members and if this was becoming an increasing problem, he replied:

We have real concerns that the Export Control Organisation is under so much pressure at the moment that it is failing UK industry in an increasing fashion. It is not meeting targets, or the time turnarounds, within which industry can cope with the delays that are being caused.[167]

111.  When the Committees put to the Business Secretary, Vince Cable, that David Hayes had suggested that the ECO was "failing UK industry in an increasing fashion" he responded by saying that: "I think the general story is actually an improvement in the administrative processes. They are clearing over 70% now within 20 working days and 95% in under 60 working days. Most of the remainder are issues where there is a political decision of judgment based on conditions on the ground. It is not usually due to administrative inefficiency." Chris Chew, Head of Policy, ECO, added: "We do have a project in place to improve that performance even further, and we are looking at a number of measures to streamline the process and to help exporters understand it better. We are listening to exporters—we recognise that there have been problems, but we are working to fix those problems."[168]

112.  I propose that the Committees recommend that the Government in its Response to the Committees' Report:

a)  sets out its reply to the criticisms made of the Export Control Organisation (ECO) by the Export Group for Aerospace and Defence (EGAD) in the course of the Committees' inquiry;

b)  states whether it considers ECO to be under-funded and under-staffed and, if so, what specific action it will take to rectify this;

c)  states what further improvements to its efficiency the Export Control Organisation it intends to make under its Service Improvement Project over and above those set out in paragraph 98 above, and the date by which the Government intends to implement each of these improvements; and

d)  further confirms that in determining arms export licence applications the Government will adhere strictly to its arms export control policies as set out in the UK's Consolidated Criteria, the EU Council's Common Position and the Foreign Secretary's statement to the Committees on 7 February 2012 that it remains the Government's policy that: "We will not issue licences where we judge there is a clear risk the proposed export might provoke or prolong regional or internal conflicts, or which might be used to facilitate internal repression.

REVIEW OF ECO

113.  The Committees' Recommendations on the review of ECO in its 2012 Report (HC 419) and the Government's Response (Cm8441) were as follows:

The Committees' Recommendation:

The Committees recommend that the Government in its Response to this Report:

a)  sets out what specific aspects of the ECO's performance it is reviewing, what conclusions it has reached in respect of each aspect being reviewed and what specific action it is taking as a result; and

b)  states when it will be providing the Committees with a further report on its review of the OGEL system previously promised to be available at the end of 2011.[169]

The Government's Response:

The Government has a programme of service improvement in the field of export licensing. The Government will shortly be consulting exporter representative organisations on proposed improvements to the Open Individual Export Licensing application process. On 31 July we published the first of a series of redrafted Open General Export Licences (Military Components) which have received the Plain English Campaign's "Crystal Mark".[170]

114.  In response the Committees asked a further question relating to the review of ECO. The Committees' question and the Government's answer were as follows:

The Committees' question:

The Committees recommended that the Government in its Response to the Committees' Report set out what specific aspects of the ECO's performance it is reviewing, what conclusions it has reached in respect of each aspect being reviewed and what specific actions it is taking as a result. The Government has not provided this information in its Response. Please could it do so in reply to this letter.

The Government's answer:

The Government has conducted a series of progressive and continuous reviews of aspects of the ECO's activities to develop a package of identifiable improvements to the export licensing process that will be acknowledged as such by exporters. We packaged this concept under a project known as the Service Improvement Project (SIP).

We initially identified the need for a change to the End User Undertaking (EUU) which accompanies an application for a SIEL and have split these into two, a "normal" EUU, and a "stockist" EUU. We will shortly be producing the new forms and their associated guidance in translated versions to help exporters explain the requirement to their overseas customers. Changing the EUU will help to speed up the export licence application process because it will reduce the number of times that a licence is held up by the need to clarify information on the EU document.

We are working to develop a manual and online training package for exporters who use the SPIRE electronic export licensing system. We are also developing desk instructions for staff which we hope will improve consistency in the processing of export licences. We have also been mapping the customer journey in relation to export licensing, so we can better understand the pinch points in our processes. We hope this will lead to the development and delivery of tailored customer service training for ECO staff.

We have implemented an improved telephone Helpline system, which will provide us with better call and queue management, pre-recorded messages and guidance information for callers while they are waiting in the queue, etc., and management information that we can use to ensure a better service to companies. The new system delivers management information such as waiting times, dropped calls etc. to enable the further fine-tuning and development of the system to meet our customers' needs.

One result of this work has been an increase in processing speeds. In 2011 the Government completed 65.4% of SIELs within 20 working days, against a target of 70%. For the year to 25 November the number completed within 20 working days has increased to 71%.[171]

115.  I propose that the Committees recommend that the Government sets out in its Response to the Committees' Report what further progress it has made in its review of the Export Control Organisation over and above that stated to the Committees in paragraph 114 above.

TRANSPARENCY OF ARMS EXPORT LICENSING

116.  On 7 February 2012 the Secretary of State for Business, Innovation and Skills, Vince Cable, issued a Written Ministerial Statement (WMS) which included an announcement relating to new initiatives within his department regarding transparency in the export licensing system. The relevant part of the WMS stated:

Transparency is also crucial because confidence in the workings of the export licensing system needs to be shared by Parliament and by the public. The system should not just be working properly; it should also be seen to do so.

I am therefore announcing today a number of proposals to improve the transparency of the export licensing system. These proposals build on my right hon. Friend's [the Foreign Secretary] review, and we intend to seek the views of interested parties, including the representatives of exporters and non-governmental organisations, on how they will work.

The first proposal is to insert into all open export licences a provision requiring the exporter to report periodically on transactions undertaken under these licences. The Government will then publish this information.

The second proposal concerns information contained in standard export licence applications. Currently all such applications are made in confidence, which makes it difficult to make public any more information than is already disclosed in the Government's annual and quarterly reports. The Export Control Organisation considers that certain additional information contained in licence applications could be made public without causing concern to exporters. I will explore ways of making this additional information public while protecting any sensitive material.

The third proposal is to appoint an independent person to scrutinise the operation of the Export Control Organisation's licensing process. The role of this independent person would be to confirm that the process is indeed being followed correctly and report on their work.

In considering these proposals we intend to consult the various interested parties to reach an outcome which achieves the Government's objective of increased transparency while at the same time imposing the minimum additional burden on exporters.

We will, simultaneously, be pursuing further changes to the strategic licensing system to make it more efficient and customer-focused, whilst maintaining the integrity of the process. Working together, my right hon. Friend and I remain committed to robust and effective national and global controls to help prevent exports that could undermine our own security or core values of human rights and democracy; to protect our security through strategic defence relationships; and to promote our prosperity by allowing British defence and security industries to operate effectively in the global defence market.[172]

117.   On 13 July 2012, Vince Cable followed up the WMS of 7 February with a further WMS.

Further to my written ministerial statement of 7 February 2012, Official Report, column WS7 on strategic export controls, I would like to update the House on progress implementing the three proposals to increase the transparency of the export licensing process. The three proposals are:

To insert into all open export licences a provision requiring the exporter to report periodically on transactions undertaken under these licences. The Government will then publish this information.

To explore ways of making additional information (contained in standard export licence applications) public while protecting any sensitive material.

To appoint an independent person to scrutinise the operation of the Export Control Organisation's licensing process. The role of this independent person would be to confirm that the process is indeed being followed correctly and report on their work.

The Department held a number of meetings with representatives of exporters and NGOs and issued a discussion paper and questionnaire in order to obtain the widest range of views on specific aspects of the proposals. We received around 100 responses to the questionnaire and I am grateful to all those who took the time to respond. A summary and analysis of the responses, and the conclusions drawn from them, have been published at: www.bis.gov.uk.

Taking each proposal in turn:

A facility will be provided on Spire, the export licensing database, for exporters to upload data on their usage of open-general and open-individual export licences. The data will include a description of the items exported or transferred, the destination, value and/or quantity, and some information about the end-user. This data will be published in aggregated form, by destination, in the Government's quarterly and annual reports on strategic export controls, and will be searchable through the strategic export control: reports and statistics website.

When submitting a licence application, applicants will be required to indicate whether any information in their applications is sensitive and should not be made public, and give reasons why. In considering whether to release this information the Government will take the applicant's wishes into account but will not be bound by them. I envisage that certain information will always be considered sensitive, such as a product's unit price and its technical specifications, and in some circumstances the name of the exporter and end-user might also be considered sensitive. The mechanism by which we make this additional information public is still to be decided.

There was less of an understanding of how an independent reviewer would operate and the benefits that this role would bring. We will therefore return to this issue at a later date.

Work will proceed between now and the end of the financial year on making the necessary technical changes to Spire and the reports and statistics website, and in preparing guidance for exporters. We will of course aim to keep any additional administrative burden on exporters to a minimum.

Public confidence in the workings of the export licensing system is crucial. These measures will result in a significant increase in the amount and quality of information that the Government make public about controlled exports. This will enable the public and Parliament to more effectively hold the Government to account in this important and sensitive area.[173]

118.  The Committees' Recommendations on the review of the transparency of arms export licensing in its 2012 Report (HC 419) and the Government's Response (Cm8441) were as follows:

The Committees' Recommendation:

The Committees conclude that the Government's commitments to introduce greater transparency into the export licensing system are welcome. The Committees recommend that the Government keeps the CAEC fully informed of the specific changes that will be made to achieve greater transparency of the export licensing system following the responses it receives to the Government's Discussion Paper on Transparency in Export Licensing.[174]

The Government's Response:

Mark Prisk, the then Minister of State for Business and Enterprise, wrote to the Committees on 12 July to draw their attention to the Secretary of State's Written Ministerial Statement of 13 July 2012.[175]

119.  Mark Prisk's letter contained a reference to Vince Cable's WMS of 13 July 2012 and attached a copy of the Government's Response to the informal consultation on Transparency in Export licensing.[176] The Government Response paper made the following overall conclusions:

For open licences collect and publish data on rating, description, quantity or value (most sensitive), destination and limited information on end-use. This will result in a significant increase in quantity of published data.

Exporters generally accept the rationale for this initiative and are generally supportive provided that the administrative burden is kept to a minimum and that what they consider to be truly sensitive information is protected. The NGOs welcome the addition of reporting on open licence usage and the provision of some information on end-user.

The mechanism for collecting data should be as simple as possible. Develop a reporting template using Excel to allow data to be uploaded or entered into SPIRE.

Require Individual Licence applicants to request that specified information should be considered sensitive, with an explanation why.

Consider further how this additional information can best be made public, whilst enhancing the usability of the existing reports.

Conduct further research into the "Independent Reviewer" role.

120.  EGAD's written submission to this inquiry said that it had concerns about the proposals for the introduction of greater transparency of the UK's export control system. Its concerns focused on two key issues:

  • That the additional information being sought is already available through the exporters' declarations to HM Revenue and Customs (HMRC); and
  • At an additional cost of £20 per entry the submission of 100,000 entries of the same data would cost the industry £2 million per annum.[177]

EGAD stated that as responsible and law-abiding firms UK companies had no objection to providing the information requested, however submitting the information twice would place an additional and unnecessary burden on industry. It proposed a single database to which the data was provided once. EGAD was also concerned about the confidentiality of information for national security reasons and for ensuring their customers that certain information will remain confidential. It believed that some customers would seek alternative suppliers who could provide guarantees of confidentiality rather than using UK companies. EGAD stated that more effort and resource by the UK governmental agencies should be used to target those companies that currently escape scrutiny by illegally operating outside of the licensing system.[178]

121.  In its Written evidence to this inquiry the UK Working Group on Arms (UKWG) welcomed the consultation undertaken by BIS and appreciated the opportunity to register its views and input into the review. It also welcomed the commitment to provide information on exports made under open licences, given its historical concerns over the lack of information available to government, parliament and the public in this regard. It further supported the provision of information on the end-user of standard licences; but urged that this information contained a meaningful level of detail beyond, for example very broad categorisations such as "government", "industry" or even "military" or "armed forces".[179]

122.  UKWG also stated that it believed that there is a potentially very important and useful role to be played by an "independent reviewer" of the operation of the licensing system. Given the recent experience of the Arab Spring an independent reviewer could play a key role in assisting in the identification of potential problems within and lessons learned for the export licensing system. It stated that in a rapidly changing world it was vital there was scope for the UK's systems to develop over time in anticipation of, as well as in response to, external developments. UKWG considered that an independent reviewer could play a useful part in ensuring that the UK's transfer licensing system was both robust and dynamic.[180]

123.  I propose that the Committees recommend that the Government, in fulfilment of its transparency policy on arms exports, sets out in its Response to the Committees' Report:

a)   whether a facility is now in operation on SPIRE to obtain additional information on arms exports and, if not, when it will be;

b)   whether the Government has decided on the mechanism for making this additional information public, and, if not, by what date it intends to do so; and

c)   whether it is still the Government's policy to appoint an independent reviewer to scrutinise the operation of the Export Control Organisation's licensing process and, if not, the reasons why this policy has been abandoned.

Powers to create new categories of export licences

124.  In the Response to a Recommendation in the Foreign Affairs' Report on "Piracy off the coast of Somalia"[181] the Government stated:

The Government has introduced an Open General Trade Control Licence which will make it easier for UK companies to move weapons from country to country to provide private armed maritime security to ships off the coast of Somalia. This has been introduced with a view to making the licensing procedure less bureaucratic, whilst maintaining strict conditions to ensure the appropriate use of weapons; we are taking a rigorous approach to each instance where a company applies to export arms equipment. Indeed, the UK operates one of the most rigorous arms export control regimes in the world and each licence application is considered against the Consolidated EU and National Arms Export Licensing Criteria. Companies wanting to use this new Open Licence must register their intent and should the company fail to satisfy any of the conditions or requirements of the licence then the Government could suspend or withdraw permission to use the Open Licence. The conditions include a requirement that weapons may only be stored on land in designated secure armouries. A simpler, non-bureaucratic process should lead to better compliance rates and mean that we are able to increase our awareness of companies' actions. The UK's anti-money laundering legislation allows companies to seek consent from SOCA to ensure that they are not undertaking an act that could constitute a money-laundering offence.

Those companies operating under either a section 5 authority or an Open General Licence will be required to respect and operate within the laws of the coastal States, made in conformity with the provisions of the 1982 United Nations Convention on the Law of the Sea and other rules of international law, through whose territorial seas, internal waters or ports they are passing. We recognise the concerns of these States at the high number of weapons passing through their ports but also the operational burden this places on companies and are working closely with industry and coastal States through the IMO to address these issues.[182]

125.  I wrote to the BIS Secretary of State on 3 September 2012 with a number of questions relating to the Government's Response, including the following question:

Under what statutory provision has the Government created and brought into effect Open General Trade Control Licences without parliamentary approval, and why was the Committee on Arms Export Controls not informed of this relaxation of arms export controls?[183]

The Secretary of State for Business, Innovation and Skills, Vince Cable, replied on 8 October 2012 as follows:

You ask a number of questions about the recent issuing of an Open General Trade Control Licence (OGTCL) to companies carrying out Maritime Security activities. At one point you refer to this as a "relaxation of arms export controls". I am happy to reassure you that this is not the case. Open General Licences (OGLs) are, as you know, a standard feature of the UK export licensing regime. This includes OGTCLs, of which four are now in existence. The Government does not consider OGLs as a soft option, but rather in those cases where we are able to define, objectively and upfront, the conditions under which we will be prepared to issue a licence: these conditions are then written into the licence and there is no need to assess each shipment case by case.

Our experience with OGLs suggests that they have been very successful in being both rigorous and business-friendly. Companies using OGLs are obliged to submit to a periodic audit to show that they are using the licences correctly. This gives my staff the opportunity to maintain a close relationship with these companies and, in many cases, tackle compliance issues before they become serious. UK companies tell us that they value OGLs as a strong unique selling point of the UK export licensing system, as they remove the administrative burden and delay caused by having to apply for a licence prior to each transaction.

In this particular case, the Government concluded that an OGTCL was the correct licensing option. We know that there were a large number of small companies providing maritime security services and we thought it particularly important to operate a licensing regime that minimised bureaucracy. We determined that we would be content for a company to use the licence if it met certain conditions, including

a)  being a signatory to the International Code of Conduct for Private Security Providers

b)  having satisfactory standard operating procedures, rules of engagement, and policies on the storage and disposal of firearms.

We also imposed restrictions on the type and quantity of military goods which could be transported under the licence.

In response to my specific question on what statutory provision had the Government created and brought into effect Open General Trade Control Licences Vince Cable replied:

The OGTCL was issued in the normal way under Article 26 of the Export Control Order 2008. There is no provision in statute or in the secondary legislation for consultation of Parliament prior to the issuing of any type of export licence, and I would be wary of committing to any such arrangement because of the need to ensure that I can exercise my powers in a timely fashion when needed. I would of course be happy to ensure that the Committee is in future informed at the point when an OGTCL is published.[184]

Article 26 of the Export Control Order 2008 states:

Licences

26.—(1) Nothing in Part 2, 3 or 4 prohibits an activity that is carried out under the authority of a UK licence.

(2) Unless it provides otherwise, a UK licence to export military goods also authorises the export or transfer of the minimum technology required for the installation, operation, maintenance and repair of the goods to the same destination as the goods.

(3) A UK licence to supply or deliver goods subject to trade controls also authorises—

(a) agreeing to supply or deliver; or

(b) doing any act calculated to promote the supply or delivery of the goods.

(4) For the purposes of Article 6 (rules about authorisations) of the dual-use Regulation, the Secretary of State is empowered to grant authorisations.

(5) The authorisation required by Article 21(1) (exportation or transfer of sensitive items within the customs territory) of the dual-use Regulation for exportation or transfer of goods, software or technology from the United Kingdom is a licence granted by the Secretary of State.

(6) A licence granted by the Secretary of State may be—

(a) either general or granted to a particular person (except that a licence granted under the torture Regulation may not be a general licence);

(b) limited so as to expire on a specified date unless renewed;

(c) subject to, or without, conditions and any such condition may require any act or omission before or after the doing of the act authorised by the licence.[185]

126.   In the Oral evidence session on 19 December 2012 I asked Vince Cable about the statutory powers that existed to enable him to create a new open licence. I asked the following question:

You will also remember that a question I put to you was, under what statutory power you created this new open licence, and you replied, "The OGTCL has been issued in the normal way under article 26 of the Export Control Order 2008." The Committee and I, and our advisers, have looked closely at article 26 and remain to be persuaded that the Secretary of State for Business does indeed have a carte blanche legal power to create new open forms of licence. I should be grateful if you could tell me whether you took legal advice as to whether you do indeed have a statutory power to create a new form of open licence at will.

The Secretary of State replied:

That comment to you was certainly based on legal advice. If strong, convincing legal advice is coming to the contrary, obviously, we need to revisit it. Obviously, you have counsel who has given you a strong steer there. But certainly, the legal advice I had was that this is all done within our existing powers.

David Frost, Director, Europe, Trade and International Trade, BIS, added:

The open general trade control licence already exists. There are already three other such licences. This is the fourth in the series. Of course, that does not necessarily invalidate the general point, but the power has been used to create such open licences in the past. This is not a new development.

I continued by saying:

[...] from our standpoint, it is a potentially serious issue for us and, indeed, for Parliament, if it is believed that the Secretary of State can, at will, create new forms of open licence. I would not, of course, for a moment, suggest that you, Secretary of State, would personally do so, but if it is the case that a power lies there, under which a future Secretary of State could basically create a hugely wide, open-ended licence and, say, replace all the existing standard individual licences with that, and create a licence which gave almost carte blanche to an exporter to sell what they wished to wherever they wished, that would be a serious matter.[186]

127.  Following the exchange of views expressed above regarding the Secretary of States' legal authority to create new types of arms export licences without Parliamentary approval, the Committees sought legal advice from the House's legal advisers on the interpretation of Article 26 of the Export Control Order 2008. The Committees were advised that the legislation does not preclude the Secretary of State from creating new types of arms export licences.

128.  I propose that the Committees conclude that Article 26 of the Export Control Order 2008 enabling the Secretary of State to create new types of arms export licences without Parliamentary approval is unsatisfactory and could be used in a way that would significantly diminish the ability of Parliament to scrutinise the Government's arms export policies. I propose that the Committees recommend that the Government should amend the Export Control Order 2008 accordingly.

Priority Markets for UK arms exports

129.  The Committees' Conclusion and Recommendation on the Priority Markets for UK arms exports in its 2012 Report (HC 419) and the Government's Response (Cm8441) were as follows:

The Committees' Recommendation:

The Committees conclude that, notwithstanding the fact that the Chairman of the Committees wrote to the BIS Secretary of State on 21 November 2011 specifically requesting that the UKTI DSO's final list of Priority Markets for 2011/2012 be made available to the Committees before Ministers gave Oral evidence on 7 February 2012, the Government was remiss in failing to ensure that the final Priority Markets list reached the Committees before Ministerial Oral evidence was given. The Committees recommend that in its Response to this Report the Government sets out fully the reasons why Libya and Saudi Arabia remain within the UK Trade and Investment Defence and Security Organisation's Priority Markets list for 2011/2012 when both countries are also listed by the Foreign and Commonwealth Office in its latest Human Rights and Democracy Annual Report as being Countries of Concern.P186FP186FP186FP186FP186F[187]

The Government's Response:

The Government is confident that the UK's Export Licensing process is robust enough to address any issues affecting Human Rights and Democracy concerns arising from individual product sales. All export licences are considered case-by-case against the Consolidated Criteria in light of circumstances at the time the application is made, and depending on the end use of the goods.

Saudi Arabia remains a priority market as it is a key strategic partner for the UK. Defence and security sales are seen as an integral part of that relationship. Saudi Arabia has consistently been the UK's largest defence export destination for the last decade; there is considerable demand from UK industry for DSO support in this market, as evidenced by the sector's Trade Association (A|D|S) marketing plan for 2012. While Saudi Arabia does feature as a Country of Concern in the FCO's Annual Human Rights Report 2011, our commercial relationship does not prevent us from speaking frankly and openly to the Saudi authorities about issues of concern, such as human rights. Several human rights issues about which we are deeply concerned have been raised this year by Ministers with members of the Saudi government and we will continue that dialogue.

Following announcement of the UN Arms Embargo, all existing export licences for goods and technology that could be used for internal repression were revoked and all future export licence applications continue to be assessed in light of the Embargo against Libya. Export licences for military or paramilitary equipment will not be issued unless they fit one of the exceptions set out in the Embargo (for example, if an export is humanitarian, or for the media, or for UN peacekeeping, or if the export provides security or disarmament assistance to the Libyan authorities).

After 40 years of Qadhafi's regime, Libya has a range of urgent civil security and defence needs, particularly in areas such as border security and air force reconstruction. Assisting the Libyan authorities in their efforts to build a stable country with secure borders and the ability to defend itself is a government priority and in line with the UK's wider support to the Libyan transition. The UK also has a clear interest in helping the Libyan authorities to defend its borders, as it will help to secure potential illegal immigration routes into Europe.

The Government therefore regards Libya as a priority market for the UK Security industry and this message has been reinforced by UK ministerial visits to Libya since September 2011. Again, the Government is confident that the UK's Export Licensing process is robust enough to address any issues affecting Human Rights and Democracy concerns arising from individual product sales and consequently, it was right to reiterate Libya as a priority market.[188]

130.  The Secretary of State for Business, Innovation and Skills, Vince Cable, wrote to me on 14 February 2013 reporting on UKTI DSO's review of its Priority Markets. Following consultation with Ministers from Whitehall Departments the UKTI DSO had concluded that the list of its Priority Markets should remain unchanged. The current list of Priority Markets for UKTI DSO is shown below in Table 3:

Table 3: BIS UKTI DSO Priority Markets
AustraliaBrazil CanadaEurope/NATO/EU (as a collective market) IndiaIndonesia
JapanKingdom of Saudi Arabia KuwaitLibya MalaysiaQatar
OmanSouth Korea ThailandTurkey UAEUSA

Source: Letter from the Secretary of State for Business, Innovation and Skills to the Chairman of CAEC, dated 14 February 2013

Two of the FCO's "Countries of concern"—Libya and Saudi Arabia—remain within the list of UKTI DSO's Priority Markets. The Secretary of State's letter stated that the UK Government was confident that the UK's Export Licensing process was robust enough to address human rights and democracy concerns arising from individual product sales to those countries.[189]

131.  I propose that the Committees conclude that it is fundamentally anomalous, not least in terms of public perceptions, for countries listed by the Foreign and Commonwealth Office as being of human rights concerns, such as Libya and Saudi Arabia, then to be listed by the United Kingdom Trade and Investment Organisation within the Department for Business, Innovation and Skills as Priority Markets for arms exports.

Trade Exhibitions

132.  The written submission from the United Kingdom Working Group on Arms (UKWG) to this inquiry contained two examples of where it believed the UK Government had failed to act in relation to the supply and promotion of goods that could be used for torture. The first example is set out in Paragraph 62 above.

133.  The second example concerned the display of promotional literature at arms trade exhibitions. As highlighted in the Committees' inquiry last year, at the Defence and Security Equipment International (DSEi) 2011 exhibition three stalls were closed after Amnesty International and Caroline Lucas alerted organisers to the display of company brochures promoting Category A goods. The UKWG called for immediate investigations into the companies displaying the prohibited literature as it believed, and still believes, these were clear breaches of UK legislation.

134.  In a letter to CAEC the Secretary of State for BIS stated that "... it is necessary to prove a link between the display of the brochure, and the eventual movement of the goods between two overseas destinations".[190] However, Article 21 of the Export Control Order 2008 states: "no person to whom this article applies shall directly or indirectly … do any act calculated to promote the supply or delivery of any category A goods, where that person knows or has reason to believe that such action or actions will, or may, result in the removal of those goods from one third country to another third country." In addition the UK Government's own website states: "The controls on Category A goods cover 'any act calculated to promote' the movement of such goods with no exemption for general advertising or promotion."[191]

135.  The UKWG believed that the display of Category A goods in promotional literature was calculated to promote supply of those goods, and that the display of catalogues containing category A goods at UK trade exhibitions was "general advertising or promotion". It believed that the Act was designed to prevent such promotional activities and it was not necessary to wait until an actual transfer had taken place to prove a direct link and that such activities were covered by the Act and called on the UK Government to clarify this and take appropriate action against companies promoting Category A goods.[192]

136.  The Committees' Conclusions and Recommendations on trade exhibitions in its 2012 Report (HC 419) and the Government's Response (Cm8441) were as follows:

The Committees' Conclusions and Recommendation:

The Committees conclude that the Government's supervision of the "Defence and Security Equipment International" (DSEi) Exhibition in London in September 2011 to ensure strict adherence by the organising company Clarion Events of the terms and conditions of its Open Individual Trade Control Licence from the BIS was inadequate, as was the supervision by the company itself. The Committees further conclude that it is a matter of much concern that the information that certain Category A items were being promoted on the Beechwood Equipment stand and that cluster munitions were being promoted on the Defence Export Promotion Organisation of Pakistan and the Pakistan Ordnance Factories stand was discovered by visitors to the exhibition and not by either the exhibition's organisers or by the Government. The Committees recommend that the Government takes all steps necessary to ensure that no breaches of the terms and conditions of the BIS licence to the organisers of the next DSEi event in 2013 occur. The Committees further recommend that in its Response to this Report the Government states:

a)  whether or not it considers the law in this area is satisfactory with particular reference to Article 21 of the Export Control Order 2008, and;

b)  whether there is any mismatch in the Government's interpretation of the relevant law between that set out in the BIS Guidance on the Impact of UK Trade Controls on Exhibitions and Trade Fairs and that set out by the Secretary of State, Vince Cable, in his letters to the Committees of 13 February and 26 March 2012.[193]

The Government's Response:

The Government does not agree with the Committees' conclusion that the two instances of promotion of undesirable materials via exhibition stands at DSEi 2011 are evidence of a lax approach to enforcement. Nevertheless, the Government will work with the organisers of DSEi 2013 to reiterate to potential exhibitors that the promotion of certain goods and technology is unacceptable at an exhibition in the UK. The Government does not consider that any change to UK law is necessary to allow proper supervision of trade exhibitions to take place, nor do we believe there is any mismatch between BIS' published guidance and the Secretary of State's letters of 13 February and 26 March 2012 (pages Ev 165 and 180 of Volume II of HC 419).[194]

137.  The Committees asked the Secretary of State for Business, Innovation and Skills, Vince Cable, during the evidence session on 19 December 2012, whether any further actions would be taken against the companies that had been found previously to have been displaying literature promoting the sales of Category A goods at DSEi in 2011, especially as one of them had been a repeat offender. Vince Cable replied to the question by stating:

[...] our starting point is that we do not want these defence sales exhibitions to be used to promote illegal activities. Obviously, that is the starting point. The legal advice we received was that the best way of dealing with the matter was simply to close those things down and stop them. As regards prosecution, you are familiar with the usual legal caveats about having sufficient proof to demonstrate causality to bring a successful prosecution. On advice, we have not pursued that route, but since we are talking about illegal activity, obviously it is an option open to us.[195]

When asked if any warning had been issued to the company he responded:

Certainly, in the exchanges with the defence organisers, they know perfectly well that this must not happen and that our people will move very quickly. It is terrible for their reputation when these things happen, quite apart from anything else, so we will certainly advise them in the very strongest terms to exercise very careful control over who they allow to display.[196]

When pressed on whether there had been "a serious laxity of supervision" Vince Cable said:

If there was a repeat offence [...] maybe stronger action would seem to be required. I will certainly go back and have a look at what the legal powers are and whether it would be particularly in cases of recidivism that we use them.[197]

138.  I propose that the Committees recommend that the Government states in its Response:

a)  whether it agrees that it is of the utmost importance that all defence and security equipment exhibitions licensed or facilitated by UK Government Departments, organisations and bodies do not display, promote or market Category A goods including goods that could be used for torture; and

b)  whether it is satisfied with the adequacy of its legal powers to enforce the legislation relating to defence and security equipment exhibitions licensed or facilitated by UK Government Departments and also with the sufficiency of the BIS Guidance on the Impact of UK Trade Controls on Exhibitions and Trade Fairs.

Enforcement

139.  The Government published statistics on enforcement actions taken by HM Revenue and Customs (HMRC), the UK Border Force and the Crown Prosecution Service (CPS). During 2011-12 there was one successful prosecution on export control and trafficking and brokering offences; this is down from nine successful prosecutions in 2010-11. Confiscation orders to the value of £1,785,722.77 were made. There were 141 seizures of strategic goods in breach of licensing requirements or sanctions and embargoes, compared to 134 in 2010-11. The number of disruptions, where strategic goods without the necessary licence had been stopped from leaving the UK had risen from 82 in 2010-11 to 188 in 2011-12.P197FP197FP197FP197FP197F[198]

140.  The Committees' Recommendations on the enforcement in its 2012 Report (HC 419) and the Government's Response (Cm8441) were as follows:

The Committees' Recommendations:

The Committees recommend that the Government in its Annual Strategic Export Controls Report provides the same information on compliance for holders of Standard Individual Export Licences (SIELs) as it already provides in its Annual Report for holders of Open Individual Export Licences (OIELs). The Committees further recommend that the Government states in its Response to this Report:

a)  in how many of the 134 cases of the Government's seizures in 2010-11 of military equipment, dual-use goods or goods subject to sanctions because of breaches of licence requirements have the cases been referred to the Crown Prosecution Service, and in how many of these cases have prosecutions been initiated; and

b)  what it considers to be the main points of difficulty the Government has, including under present legislation, in achieving compliance with, and enforcement of, its arms export controls.[199]

The Government's Response:

The Committees' recommendation regarding non-compliance figures for SIELs appears to be based on a misunderstanding of the Export Control Organisation's (ECO's) compliance process. With one exception (explained below) the ECO's Compliance Inspectors only audit those companies and individuals who export or trade under Open Individual or Open General Export Licences (OIELs, OGELs), or Trade Licences (SITCLs, OITCLs and OGTCLs), to ensure that these licences are being used correctly and that the licence conditions are being met. These audits are required because of the very different nature of these licences compared to Standard Individual Export Licences (SIELs). A SIEL permits the export of a specific quantity of specified items to a single named end-user. All relevant supporting documentation, such as end-user undertakings and technical specifications, are submitted as part of the licence application process, so that there is a very clear picture of the proposed export before the licence is issued. Verification that the licence is being used correctly is carried out at the UK border by the Border Force working with HMRC. In contrast, an OIEL may permit export of an unlimited quantity of a wide range of items to a number of recipients in a number of destinations over a period of up to 5 years. In the case of OGELs, these licences can be used by any company or individual subject to the exporter satisfying themselves that all the terms and conditions can be met. Trade licences authorise the movement of goods between two or more overseas countries. In all of these cases we consider that additional checks are required on a periodic basis to ensure the licences have been used correctly, either because we do not receive full information about the proposed transactions before they take place or because the goods do not move across the UK border. The compliance audit fulfils this function. The only circumstance where the ECO does audit the use of SIELs is where the licence authorises electronic transfers of software or technology because in this case there is no physical movement of an item across the UK border. However, because this represents a very small proportion both of the number of SIELs issued and the number of compliance audits undertaken it would be misleading to publish separate compliance figures for such transactions made under SIELs.

a)  So far none of the 134 seizures made in 2010-11 have been referred to the Crown Prosecution Service. The Government assesses that the majority of seizures occur as a result of administrative mistakes and a lack of knowledge by exporters. These types of breaches are normally dealt with by issuing of warning letters and criminal prosecution would be a disproportionate action in most cases. Only a relatively small number of seizures occur as a result of deliberate illegal activity intended to evade UK export controls. These more serious cases are those which would be more likely to result in criminal prosecution.

b)  The Government is satisfied that the current legislation provides an adequate legal framework to encourage compliance with, and deliver enforcement of, arms export controls. The Government believes that compared to the number of licences granted and the volume of goods exported under licences, the current levels of non-compliance are relatively low and the current compliance and enforcement response is proportionate and effective. The Government believes that the majority of UK exporters seek to comply with the rules and that the majority of breaches of arms export controls are of a less serious nature. The government works hard to ensure that non-compliance is identified and all credible allegations of breaches of the controls are investigated. HMRC examines all credible reported cases of non-compliance and once an assessment has been made a proportionate enforcement response is delivered. These can range from the issuing of warning letters and compound penalties for less serious breaches through to criminal prosecution for those cases of serious non-compliance. BIS and HMRC also invest time and resources in educating trade and industry in order to improve knowledge on export controls, with a view to reducing administrative errors. The most significant challenges to effective enforcement are attributable to wider factors such as the increasing volumes and changing dynamics of legitimate international trade and passenger movements.[200]

141.  Following analysis of the Government's Response the Committees put 4 further questions to the Government on enforcement. The Committees 4 questions, with the Government's answers were as follows:

The Committees' question:

In the verification of Standard Individual Export Licences (SIELs) carried out at the UK border by the Border Force working with the HMRC, in the last year for which figures are available, in how many cases has it been found that the licence is not being used correctly?

The Government's answer:

Between 1 April 2011 and 31 March 2012 approximately 15,500 SIELs were presented for verification by HMRC and Border Force at the external border. Of these 15,500 approximately 3% were being used incorrectly. Examples of incorrect use include information being entered in the wrong box on the customs declaration and failure to attach all of the required commercial documentation. Almost all of these discrepancies were minor administrative errors which were resolved by HMRC or Border Force staff speaking with the exporter to gather the required information which then allowed the exports to proceed.

The Government continues to prioritise checking SIELs as they can cover the most sensitive goods. The Government will also continue to work with UK exporters to raise their understanding of the information and process required to export strategic goods in order to reduce errors.

The Committees' question:

In the ECO's audit of SIELs where the licence authorises electronic transfers of software or technology, in the last year for which figures are available, in how many cases has the ECO audit found non-compliance, and how many such audits did ECO undertake in the same period?

The Government's answer:

During compliance audits, all licences held by companies are reviewed against the terms and conditions of those licences. Currently there is no facility available to log the compliance level against a particular type of licence. However, breaches of any particular licence are recorded in audit reports and proportionate remedial actions specified. In 2011, 720 audits were undertaken. At the time of audit no breaches were identified of SIELS for electronic transfers of software or technology.

The Committees' question:

In how many of the 134 cases of the Government's seizures in 2010-11 of military equipment, dual-use goods or goods subject to sanctions did the seizures occur as the result of deliberate illegal activity intended to evade UK export controls, and why have none of these cases so far been referred to the Crown Prosecution Service?

The Government's answer:

In line with previous answers provided to the Committee, the Government believes that the majority of seizures occur as a result of administrative mistakes and a lack of knowledge by UK exporters rather than as a result of deliberate illegal activity intended to evade UK export controls.

The 134 seizures in question were assessed—using our standard working practices—by a combination of Border Force and HMRC staff. A range of factors including, but not limited to, the nature of the goods, their destination, any indications the exporter knew their activity was illegal and any previous indications of them attempting to evade the controls were considered. The nature of these assessments can vary from seizure to seizure depending on the individual circumstances and it is not always possible to conclusively determine whether the seizures were the result of deliberate illegal activity.

In any case indications of deliberate illegal activity would not on their own automatically lead to a referral to HMRC for criminal investigation and hence potentially onto the Crown Prosecution Service. In addition to the above factors, HMRC also gives consideration as to whether an alternative disposal—such as education of the exporter, issuing of a warning letter or compound penalty—would be more appropriate to prevent the risk of future breaches.

It is only where there are sufficiently serious circumstances behind the seizure, combined with a realistic prospect of securing a conviction, based on the evidence available, and a public interest in prosecuting, that a formal referral is made to the Crown Prosecution Service for consideration for prosecution. HMRC and the Crown Prosecution Service work closely on these matters before and after such a referral. At the present time HMRC believes none of the 134 seizures are suitable for a formal referral to the Crown Prosecution Service as they already have been disposed of through appropriate means, having been considered on the above criteria.

The Committees' question:

What are the specific "changes of legitimate international trade and passenger movements" that are creating significant challenges to effective enforcement of the Government's arms export control legislation?

The Government's answer:

HMRC and Border Force's risk-based and intelligence-led strategy is focused on identifying the very small amount of non-compliance that exists within the overwhelmingly legitimate international movements of goods.

An example of one of the changes which pose a challenge is the increased value (and therefore likely overall amount) of UK exports to countries under UN or EU sanctions or to which we otherwise have proliferation concerns. For example, the value of exports to Burma increased by 14.3% between 2010 and 2011 and exports to North Korea increased by 110% in the same period. Whilst the vast majority of this trade is legitimate, there is a potential for increased illicit exports as well.

Another example is that according to the Civil Aviation Authority, between 2010 and 2011 there was a 5% increase in air passenger traffic between the UK and the Middle East, a 9% increase in air passenger traffic between the UK and China and a 3% increase in air passenger traffic between the UK and the Indian Sub-Continent.

These increases and changes in passenger numbers and the movement of goods are expected as part of the legitimate global economy; the Government believes that HMRC and Border Force will continue to identify suspected illicit exports and take prompt and effective action.P200FP200FP200FP200FP200F[201]

142.   Following the Government's publication of its Annual Report 2011 on UK Strategic Export Controls in July 2012, the Committees put five questions on enforcement to the Government. The Committees' five questions, with the Government's answers were as follows:

The Committees' question:

Why has the Government not disclosed in its Report that the ability of the Crown Prosecution Service to prosecute cases referred to them by HMRC in respect of breaches of export and trade controls where restricted or controlled goods have been moved from one third country to another by UK nationals anywhere in the world is significantly limited because the Government has thus far not accepted the successive recommendations of the Committees on Arms Export Controls that extra-territoriality should be extended to the remaining Military List Goods in Category C?

The Government's answer:

The Government does not consider that the Crown Prosecution Service is significantly limited in its ability to prosecute the breaches as described. The Government can and does prosecute offences related to the export and trade of Category A and B Military List goods. Since the first legislation for these offences—the Trade in Goods (Control) Order was introduced in 2003—there have been seven successful prosecutions of trafficking and brokering offences.

In relation to Category C goods the Government policy remains as set out in the Secretary of State for Business, Innovation and Skills' letter of 2 February 2012. Our view is that the extension of extra-territorial trade controls to Category C goods would not at this time be justified and we do not therefore propose to act on this recommendation of the Committees for the time being. We stand ready to alter the scope of Categories A, B and C where necessary and where justified by the evidence.

The Committees' question:

Has the reported reductions in the number of staff in the Border Force had any impact on the enforcement of UK strategic export and trade controls?

The Government's answer:

Since 2009 the number of Border Force staff permanently dedicated to enforcing strategic export controls has increased. A new national strategic export control team has been created and there are now dedicated resources in both air and maritime locations. There has also been an increase in the intelligence and policy resources in HMRC.

HMRC and the Border Force use a risk-based and intelligence-led approach to the deployment of resources. Activity is focused on ports most at risk of export control breaches.

This additional resource has resulted in increased seizures and disruptions as well as additional educational work with exporters on strategic export controls, in order to promote compliance.[202]

The Committees' question:

Is the record number of seizures of controlled goods by HMRC in the financial year 2011-12 due to improved effectiveness of HMRC or to ever increasing attempts by UK companies and persons to circumvent the UK's strategic export controls, or to both?

The Government's answer:

The 141 seizures made in 2011-2012 were the highest for 13 years. The Government believes this increase is the result of a combination of factors.

One factor is the increase in HMRC and Border Force resources that have been permanently deployed to strategic export control in the last three years. These new resources are also making increased use of risk information to target consignments that breach export controls. There have also been significant additional UN and EU sanctions coming into force. This has increased the range of goods that are prohibited or restricted from being exported without a licence.

The Government believes that compared to the number of licences granted and the volume of goods exported under licence the current levels of serious non-compliance are relatively low. The Government, in line with previous answers to the Committee, attributes the majority of seizures to administrative errors on the part of exporters. The Government has no reason to believe there has been an increase in wilful non-compliance by exporters.

The Committees' question:

Why, when there was a record number of seizures of controlled goods in the 2011-12 financial year, was there only one prosecution in that year compared with 8 in 2010-11?

The Government's answer:

The Government assesses that the majority of seizures occur as a result of administrative mistakes and a lack of export control awareness by exporters. Only a relatively small number of seizures occur as a result of deliberate illegal activity intended to evade UK export and trade controls which would be suitable for criminal investigation and then prosecution. The Government works hard to ensure that non-compliance is identified and all credible allegations of breaches are looked into. After careful consideration, the appropriate and proportionate response is made by HMRC or the Crown Prosecution Service.

For less serious breaches, the issuing of warning letters and awareness-raising by HMRC and BIS is usually appropriate. More serious breaches can lead to the issuing of a compound penalty by HMRC. Only in the most serious breaches would a prosecution be undertaken.

The investigation of offences suitable for prosecution and accompanying preparation by the CPS means it can be a number of years for offences detected through seizure to come to court. The Government have set no targets for the number of prosecutions and there is no direct correlation between the number of seizures and the number of prosecutions.

The Committees' question:

Do the 4 Secretaries of State consider that the sentences handed down by the courts following successful prosecutions for strategic export offences, as detailed in Table 1.4, are adequate, and have the Secretaries of State made any representations to the Secretary of State for Justice that sentences for these offences should be reviewed or increased?

The Government's answer:

Sentences handed out in any specific case will depend on the particular facts and circumstances of that case. The Secretaries of State have made no representations. The appropriateness of sentencing is a matter for the Sentencing Council for England and Wales (http://sentencingcouncil.judiciary.gov.uk/).[203]

143.  Mr Michael Ranger was jailed for three-and-a-half years on 20 July 2012 for attempting to sell surface to air missiles to Azerbaijan despite an arms embargo to Azerbaijan being in force. Mr Ranger attempted to source arms from suppliers in the United States and North Korea to sell on to Azerbaijan.[204] In October 2012 Mr Gary Hyde was found guilty of illegally supplying arms from China to Nigeria in 2007 following a five-year investigation by HMRC. The deal involved shipping 80,000 weapons, including AK-47s and Makarov pistols, and 32 million rounds of ammunition. In December 2012 he was sentenced to seven years imprisonment.[205]

144.  In the last two United Kingdom Strategic Export Controls Annual Reports the Government has included a table (Table 1.4 in each of the reports) that list the Crown Prosecution Service prosecutions of strategic export and trade control cases for the period 2009-10 until 2011-12. The tables details the military goods involved, the destination of the goods, the companies or individuals successfully prosecuted, the offences for which they were prosecuted and their prison sentences and/or financial penalties.[206]

145.  I propose that the Committees recommend that the Government states in its Response whether it considers that enforcement by the UK Border Force with HMRC of compliance with the terms of all arms export licences is fully satisfactory and, if not, what further enforcement action it will take. I propose that the Committees conclude that the Government's continued publication of individuals and companies convicted of arms export offences and their sentences is essential.

Compound penalties

146.  Compound penalties are a means by which HMRC can offer exporters the opportunity to settle a case which would justify being referred to the CPS for prosecution by paying a financial penalty instead, thereby saving the taxpayer and company both time and legal fees. Compound penalties are now a significant element in the Government's enforcement of arms export controls. In 2010-11 HMRC issued 11 compound penalties, totalling £359,000.[207] In 2011-12, 8 compound penalties were issued, totalling £503,700.[208]

147.  The Committees' Recommendation on compound penalties in its 2012 Report (HC 419) and the Government's Response (Cm8441) were as follows:

The Committees' Recommendation:

The Committees recommend that now the present compound penalty regime in relation to arms exports has been in operation for two years, the Government in its Response to this Report provides an assessment of its strengths and weaknesses as shown to date, and details the improvements it wishes to implement.[209]

The Government's Response:

The Government has monitored the operation of the compound penalty regime since it was implemented in April 2010. In that period HMRC have issued a total of 24 penalties worth £1,198,700, with the largest penalty £350,000 and the smallest £1,000. These penalties have been issued for a range of suspected breaches. The Government believes that the compound penalty regime has proved to be an effective and efficient alternative to the introduction of civil penalties for strategic export control offences. The Government believes that use of compound penalties has strengthened the strategic export control enforcement framework, and has complemented measures taken by BIS to improve deterrence, for example, by withholding the use of open licences from exporters that do not comply with licence conditions. We note and welcome the increase in voluntary disclosures we have seen since the introduction of this penalty regime and the improved dialogue this has given us with trade and industry. HMRC continues to monitor the progress of the regime and they will work closely with exporters, trade bodies and partners across Government to ensure it remains effective, proportionate and appropriately utilised. We will look to identify potential improvements and implement them where possible.[210]

148.  I propose that the Committees recommend that the Government in its Response:

a)  states what improvements to the compound penalties system it has identified and when it will implement them; and

b)  clarifies whether the Government is using compound penalties as an alternative to civil penalties only, or as an alternative to both criminal and civil proceedings.

Crown Dependencies

149.  In last year's Report the Committees examined the issue of the Crown Dependencies and arms export controls due to the issue of the MS Thor Liberty (see para 150 below). The Crown Dependencies are the Bailiwick of Jersey, the Bailiwick of Guernsey and the Isle of Man. The Bailiwick of Guernsey includes the separate jurisdictions of Alderney and Sark and is responsible for the administration of the islands of Herm, Jethou and Lihou. The island of Brecqhou is part of Sark.[211] Jersey, Guernsey and the Isle of Man are not part of the UK but are self-governing Dependencies of the Crown. This means they have their own directly elected legislative assemblies, administrative, fiscal and legal systems and their own courts of law. The Crown Dependencies are not represented in the UK Parliament and UK legislation does not extend to them.[212]

150.   In December 2011 the MS Thor Liberty, a cargo ship registered in the Isle of Man with an Ukrainian crew, was detained in the Finnish port of Kotka. It had sailed from the North German port of Emden two days previously and was bound for China. Finnish officials found 160 tonnes of explosives (picric acid) and 69 Patriot surface-to-air missiles on board the vessel. The explosives and missiles were seized by Finnish authorities until it was determined that the missiles were an official shipment from Germany to South Korea and that the explosives were a legitimate shipment to China. However, the Finnish police said the missiles lacked proper transit documents and the explosives were not safely stored. The Finnish military destroyed some of the explosives, while the rest was re-packed in more secure storage. The ship was cleared to leave Finland after a few days; however, the ship's captain and first mate were detained by Finnish authorities.[213]

151.   The Committees' Conclusion and Recommendation on the Crown Dependencies in its 2012 Report (HC 419) and the Government's Response (Cm8441) were as follows:

The Committees' Conclusion and Recommendation:

The Committees conclude that the MS Thor Liberty incident revealed how ships registered in the Crown Dependencies could provide a means whereby shipments of arms could occur that would be in breach of UK Strategic Export Controls if carried out by a vessel registered in the UK. The Committees recommend the Government in its Response to this Report states whether it will give consideration to bringing the Crown Dependencies within the ambit of UK Strategic Exports Control legislation.[214]

The Government's Response:

The Government does not agree with the Committees' conclusion that a shipment of arms on board a UK registered vessel would necessarily be a breach of UK strategic export controls. A vessel or aircraft registered in the UK is not considered to be part of the UK nor is it a "UK person" as defined in section 11 of the Export Control Act 2002. Therefore carriage of controlled military goods by such a vessel or aircraft is not itself a breach of UK export or trade controls. In any event, UK strategic export control legislation has already been applied in the Crown Dependencies by the authorities of the Crown Dependencies themselves.[215]

152.  Following analysis of the Government's Response the Committees put a further question to the Government on Crown Dependencies. The Committees' question, with the Government's answer, were as follows:

The Committees' question:

In their Report the Committees stated that: "The Committees conclude that the MS Thor Liberty incident revealed how ships registered in the Crown Dependencies could provide a means where shipments of arms could occur that would be in breach of UK Strategic Export Controls if carried out by a vessel registered in the UK" (Paragraph 117 of HC 419-I). The Government's statement in its Response that the Committees had concluded "that a shipment of arms on board a UK registered vessel would necessarily be a breach of UK Strategic Export Controls" (Paragraph 25 of Cm8441) is therefore incorrect.

The Government's answer:

We are grateful to the Committees for this clarification.[216]

153.   I propose that the Committees conclude that the Government's statement that "UK Strategic Export Control legislation has already been applied in the Crown Dependencies by the Crown Dependencies themselves" is welcome.

154.  I propose that the Committees recommend that the Government monitors enforcement by the Crown Dependencies of the UK Government's arms export controls and policies and notifies the Committees of any breaches

Combating bribery and corruption

155.  In their 2011 Report (HC 686) the Committees concluded that the Government had failed to demonstrate satisfactorily whether it assessed the risk that individual arms exports may be linked to bribery and corruption during the licence approval process. The Committees recommended that the Government should set out in its Response to the Report whether such an assessment was made for all arms export licence applications, and if so, how.[217] The Government responded by stating that the focus of the Government's scrutiny relating to bribery and corruption in the licensing process was the risk that goods might be diverted from their intended use. It said that corrupt contract awards and corrupt processes further down the chain can increase the risk of diversion and where there was credible evidence of such risks emerging, licence applications would be refused. It concluded by stating that when the Government became aware of corruption in arms deals, it would take the appropriate action under the provisions of the Bribery Act 2010.[218] The Committees were concerned that the Government's Response appeared to be unduly limited in scope with the Government focusing its scrutiny of bribery and corruption predominately on arms exports which might be diverted or re-exported, notwithstanding the fact that bribery and corruption may occur in many other circumstances. I, therefore, wrote to the Foreign Secretary on 18 July 2011 asking the Government to confirm that if it became aware of corruption in arms deals it would, regardless of whether there is a risk of diversion or re-export under Criteria 7, take appropriate action under the provisions of the Bribery Act 2010.[219] The Foreign Secretary replied that the Government would, if it became aware of corruption in arms deals, take appropriate action under the provisions of the Bribery Act 2010.[220]

156.  In their 2011 Report (HC 686) the Committees also recommended that: "given that Criterion 8 applies only to developing countries and that bribery and corruption are not confined to such countries, the Government gives full consideration to proposing the insertion of an additional Criterion into the EU Common Position on arms exports obliging Member States to assess the risk of bribery and corruption before approving an arms export licence to any country."[221] The Government responded:

As the Minister for Business made clear during the evidence session on 24 January 2011, the Government does not support the Committees' recommendation. It would not be appropriate to base an assessment merely on the perception of corruption in the destination country. In order to refuse a licence under a corruption criterion, we would need to have firm evidence that the contract had been obtained by corruption and it is not feasible for the Government to investigate the circumstances of every contract. The Government therefore intends to maintain its focus on assessing the risks presented by the end-use or potential end-use of the goods, and the risks of diversion to undesirable end-use or end-users

The new Bribery Act modernises the law on bribery and gives the UK some of the toughest anti-corruption laws in the world. Where there is evidence of bribery and corruption, the Government will address it through the provisions of the Act. We will also continue to support wider initiatives such as the defence industry's Common Industry Standards and Global Principle of Ethics.[222]

157.  The Committees' two Conclusions and Recommendation on combating bribery and corruption in its 2012 Report (HC 419) and the Government's Responses (Cm8441) were as follows:

The Committees' Conclusion:

The Committees conclude that the Government's unqualified confirmation that if it becomes aware of corruption in arms deals it will take appropriate action under the provisions of the Bribery Act 2010, regardless of whether there is a risk of diversion or re-export under Criteria 7, is welcome.[223]

The Government's Response:

The Government notes the Committees' conclusion.[224]

The Committees' Conclusion and Recommendation:

The Committees conclude that an examination of the EU's Common Position on arms exports, the text of which is set out fully in Annex 4 of this Report, shows that there are numerous grounds in the Common Position on which Member States should refuse an arms export licence based on the perception of the destination country, for example where the arms might be used to facilitate internal repression, where there have been serious violations of human rights, or where sustainable development would be seriously hampered. The Committees, therefore, do not accept the Government's view that: "It would not be appropriate to base an assessment [of an arms export licence application] merely on the perception of corruption in the destination country." The Committees continue to recommend that the Government gives full consideration to proposing the insertion of an additional Criterion into the EU Common Position on arms exports obliging Member States to assess the risk of bribery and corruption before approving an arms export licence to any country.[225]

The Government's Response:

The Government does not share the Committees' interpretation of the EU Common Position on arms exports. The Common Position requires a case-by-case assessment of each export licence application (Article 1). "Case-by-case" means making the assessment based on the particular facts and circumstances of the proposed export. The Common Position sets out for each of the Criteria a range of factors that Member States should take into account in making their assessments. However, these factors are not to be taken in isolation as a reason for refusal but must be viewed in light of the nature of the specific proposed export. Only where this case-by-case assessment indicates there is an unacceptable risk of the proposed export breaching the Criteria would a licence be refused. In the same way, the Government continues to believe that it would not be appropriate to refuse an export licence simply because a country was perceived to be corrupt; instead it would be necessary to assess the risk that the proposed export in question had been subject to corrupt practices.[226]

158.  In his evidence to this inquiry Andrew Feinstein, founding director of Corruption Watch UK and author of The Shadow World: Inside the Global Arms Trade,[227] stated that the global trade in arms accounts for 40% of corruption in all global trade and that "nearly all studies concur that the arms trade is disproportionately given to corrupt practices compared to its relatively modest financial value." He wrote that there are a number of systemic issues within the global arms trade that create fertile ground for corruption and other illicit practices and that these are "built into the very nature of the arms trade." These features are:

  • secrecy related to national security and commercial confidentiality;
  • the intimacy of buyers, suppliers and their brokers;
  • the significant economic and personal linkages between the licit and illicit trades in weapons;
  • the sophistication, fragmentation and, in many cases, opacity of global production, transportation and financial networks and instruments;
  • the technical specificity of the product;
  • procurement pressures; and
  • the high financial rewards coupled with a lack of consequences.

He continued by stating that the four most frequent corrupt practices and means to acquire undue influence are:

  • bribery;
  • the failure to declare a conflict of interest;
  • the promise of post-employment; and
  • the offer of preferential business access.[228]

159.  I propose that the Committees recommend that the Government in its Response:

a)  states the names of the individuals and companies against whom it has taken action under the provisions of the Bribery Act 2010 in relation to their arms export dealings; and

b)  provides its assessment as to whether the provisions of the now concluded Arms Trade Treaty will be of any practical help in combating bribery and corruption in the international arms trade.

International Development

160.  Criterion 8 of The Consolidated Criteria, detailed in full in Annex 8 reads:

CRITERION EIGHT

The compatibility of the arms exports with the technical and economic capacity of the recipient country, taking into account the desirability that states should achieve their legitimate needs of security and defence with the least diversion for armaments of human and economic resources.

The Government will take into account, in the light of information from relevant sources such as United Nations Development Programme, World Bank, IMF and Organisation for Economic Cooperation and Development reports, whether the proposed export would seriously undermine the economy or seriously hamper the sustainable development of the recipient country.

The Government will consider in this context the recipient country's relative levels of military and social expenditure, taking into account also any EU or bilateral aid, and its public finances, balance of payments, external debt, economic and social development and any IMF- or World Bank-sponsored economic reform programme.

161.  In the Committees' 2011 Report (HC 686) the Committees recommended that the Government should provide them with a full statement of the methodology it uses in relation to Criterion 8 in deciding whether or not a specific arms export licence should be approved. The Government responded:

The methodology that the Government uses in relation to Criterion 8 of the Consolidated Criteria was published as Annex C (page 71) of the United Kingdom Strategic Export Controls Annual Report 2007 published in July 2008 and available on the FCO website.[229]

Annex C, referred to in the response can be found at on pages 71-74 of the United Kingdom Strategic Export Controls Annual Report 2007 on the FCO website at: http://www.fco.gov.uk/resources/en/pdf/4103709/2007-ar-uk-strat-exp-conts

162.  The Committees' Recommendations on international development in its 2012 Report (HC 419) and the Government's Responses (Cm8441) were as follows:

The Committees' Recommendation:

The Committees recommend that the Government in its Response to this Report states whether the methodology it uses in relation to Criterion 8 has been changed from that at Annex C of the United Kingdom Strategic Exports Controls Annual Report 2007, and, if so, to provide the Committees with the complete text of the changed methodology.[230]

The Government's Response:

There has been no change to the methodology used by the Government in relation to Criterion 8. The Government uses the most recent list of IDA eligible countries for the assessment of export licence applications.[231]

The Committees' Recommendation:

The Committees recommend that the Government provides in its Response to this Report the outcome of the Department for International Development's consideration of its role in the UK's arms export control system, including which are the most appropriate Criteria in the Consolidated Criteria on which it considers it should be consulted.[232]

The Government's Response:

DFID already leads on assessing export licences applications against Criterion 8. The Government is currently considering the best way for DFID to bring to bear their specialist expertise and analysis for export licence decisions, including possible contributions to assessment against other Criteria, and will inform the Committees of the outcome in due course.[233]

163.  Following analysis of the Government's Response the Committees put a further question to the Government on international development. The Committees' question, with the Government's answer were as follows:

The Committees' question:

By what date does the Government expect to inform the Committees of the outcome of the Department for International Development's consideration of its role in the UK's arms export controls system?

The Government's answer:

Negotiations on a global Arms Trade Treaty will be held in March 2013. The final Treaty could have implications for the role that the Department for International Development and other Government Departments play in the current licensing system. The Government will therefore inform the Committee on the outcome of DFID's consideration of its role within six months of the adoption of a Treaty.[234]

164.  Now that a global Arms Trade Treaty has been adopted, I propose that the Committees recommend that the Government states in its Response the outcome of the Department for International Development's consideration of its role in the UK arms export control system.


139   Details of the Foreign and Commonwealth Office's work on global policies can be found at www.gov.uk/governmetn/policies. Back

140   "The Export Control Organisation: an overview ", Department for Business, Innovation and Skills, https://www.gov.uk/about-the-export-control-organisation Back

141   Committees on Arms Export Controls, First Joint Report of Session 2010-12, Scrutiny of Arms Export Controls (2011): UK Strategic Export Controls Annual Report 2009, Quarterly reports for 2010, licensing policy and review of export control legislation, HC 686, Q 63 Back

142   Committees on Arms Export Controls, First Joint Report of Session 2010-12, Scrutiny of Arms Export Controls (2011): UK Strategic Export Controls Annual Report 2009, Quarterly reports for 2010, licensing policy and review of export control legislation, HC 686, Q 77 Back

143   Government Response to Committees on Arms Export Controls, First Joint Report of Session 2010-12, Scrutiny of Arms Export Controls (2011): UK Strategic Export Controls Annual Report 2009, Quarterly reports for 2010, licensing policy and review of export control legislation, Cm 8079, page 7 Back

144   HC Deb, 20 October 2011, col 337WH Back

145   HC Deb, 20 October 2011, col 363WH Back

146   See: Committees on Arms Export Controls, Second Report of Session 2010-12, Scrutiny of Arms Exports (2012): UK Strategic Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, HC 419-II, Q 77 Back

147   See: Committees on Arms Export Controls, Second Report of Session 2010-12, Scrutiny of Arms Exports (2012): UK Strategic Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, HC 419-II, Q 80 Back

148   Committees on Arms Export Controls, Second Report of Session 2010-12, Scrutiny of Arms Exports (2012): UK Strategic Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, HC 419, para 72 Back

149   Government Response to Committees on Arms Export Controls, First Joint Report of Session 2012-13, Scrutiny of Arms Exports (2012): UK Strategic Export Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, Cm 8441, page 95 Back

150   Department for Business, Innovation and Skills, Department for International Development, Foreign and Commonwealth Office and Ministry of Defence, Strategic Export Control: United Kingdom Strategic Export Controls Annual Report 2011, HC 337, p 7 Back

151   Annex 2-The Committee' questions on the Government's United Kingdom Strategic Export Controls Annual Report 2011 (HC 337) and the Government's answers, p 424 Back

152   Appeals concerning goods that are controlled by UN sanctions are excluded due to the additional processing vis UN bodies, etc, and due to consideration of higher political concerns.  Back

153   Department for Business, Innovation and Skills, Department for International Development, Foreign and Commonwealth Office and Ministry of Defence, United Kingdom Strategic Export Controls Annual Report 2011, HC 337, pages 37-38 Back

154   Committees on Arms Export Controls, Second Report of Session 2010-12, Scrutiny of Arms Exports (2012): UK Strategic Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, HC 419, para 80 Back

155   Government Response to Committees on Arms Export Controls, First Joint Report of Session 2012-13, Scrutiny of Arms Exports (2012): UK Strategic Export Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, Cm 8441, page 10 Back

156   Annex 2-The Committees' questions on the Government's United Kingdom Strategic Export Controls Annual Report 2011 (HC 337) and the Government's answers, p 448 Back

157   Ev w46 Back

158   F680 applications-The MoD Form 680 is designed for the Release of Defence Information Overseas or the Export of Defence Equipment Overseas. If exporters plan to sell, demonstrate, promote or export certain equipment, goods or information which is classified, they need Ministry of Defence (MOD) clearance to do so. Source: www.spire.bis.gov.uk/docs/MODF680application.pdf Back

159   INTELLECT is an industry body representing the UK's technology industry. Back

160   Ev w46 Back

161   Ev w46 Back

162   Q 53 Back

163   Ev w78-79  Back

164   Ev w79 Back

165   Q 45 Back

166   Q 48 Back

167   Q 49 Back

168   Q 71 Back

169   Committees on Arms Export Controls, Second Report of Session 2010-12, Scrutiny of Arms Exports (2012): UK Strategic Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, HC 419, para 84 Back

170   Government Response to Committees on Arms Export Controls, First Joint Report of Session 2012-13, Scrutiny of Arms Exports (2012): UK Strategic Export Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, Cm 8441, page 11 Back

171   Annex 3-The Committee' questions on the Government's Response (Cm 8441) to the Committees' Report 2012 (HC 419-I & II) and the Government's answers, p 461 Back

172   HC Deb, 7 February 2012, cols 7-9WS Back

173   HC Deb, 13 July 2012, cols 69-70WS Back

174   Committees on Arms Export Controls, Second Report of Session 2010-12, Scrutiny of Arms Exports (2012): UK Strategic Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, HC 419, para 91 Back

175   Government Response to Committees on Arms Export Controls, First Joint Report of Session 2012-13, Scrutiny of Arms Exports (2012): UK Strategic Export Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, Cm 8441, page 11 Back

176   Department for Business, Innovation and Skills, Transparency in Export licensing: Government Response, July 2012 Back

177   Ev w46-47 Back

178   Ev w47 Back

179   Ev w72 Back

180   Ev w72 Back

181   Foreign Affairs Committee, Tenth Report of Session 2010-12, Piracy off the coast of Somalia, HC 1318, January 2012, para 43 Back

182   Foreign and Commonwealth Office, Government Response to the Foreign Affairs Committee Report "Piracy off the Coast of Somalia", Cm8324, March 2012, pp 6-7  Back

183   Ev w89-Letter from the Chairman of the Committees on Arms Export Controls to Vince Cable dated 3 September 2012 Back

184   Ev w98-Letter from Vince Cable to the Chairman of the Committees on Arms Export Controls dated 8 October 2012 Back

185   The Export Control Order 2008 (SI 2008/3231), Article 26  Back

186   Qq 82-83  Back

187   Committees on Arms Export Controls, Second Report of Session 2010-12, Scrutiny of Arms Exports (2012): UK Strategic Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, HC 419, para 95 Back

188   Government Response to Committees on Arms Export Controls, First Joint Report of Session 2012-13, Scrutiny of Arms Exports (2012): UK Strategic Export Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, Cm 8441, pages 11-12 Back

189   Ev w159-Letter from Vince Cable to the Chairman of the Committees of Arms Export Controls dated 14 February 2013 Back

190   See HC 419-Ev 180, Letter from Vince Cable to the Chairman of Committees on Arms Export Controls, dated 26 March 2012.  Back

191   https://www.gov.uk/trade-controls-military-goods-on-trade-fairs-and-exhibitions Back

192   Ev w76 Back

193   Committees on Arms Export Controls, Second Report of Session 2010-12, Scrutiny of Arms Exports (2012): UK Strategic Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, HC 419, para 102 Back

194   Government Response to Committees on Arms Export Controls, First Joint Report of Session 2012-13, Scrutiny of Arms Exports (2012): UK Strategic Export Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, Cm 8441, page 13 Back

195   Q 105 Back

196   Q 106 Back

197   Q 107 Back

198   Department for Business, Innovation and Skills, Department for International Development, Foreign and Commonwealth Office and Ministry of Defence, United Kingdom Strategic Export Controls Annual Report 2010, HC 1402, page 8; and Department for Business, Innovation and Skills, Department for International Development, Foreign and Commonwealth Office and Ministry of Defence, United Kingdom Strategic Export Controls Annual Report 2011, HC 337, page 11 Back

199   Committees on Arms Export Controls, Second Report of Session 2010-12, Scrutiny of Arms Exports (2012): UK Strategic Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, HC 419, para 105 Back

200   Government Response to Committees on Arms Export Controls, First Joint Report of Session 2012-13, Scrutiny of Arms Exports (2012): UK Strategic Export Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, Cm 8441, pages 13-15 Back

201   Annex 3-The Committee' questions on the Government's Response (Cm 8441) to the Committees' Report 2012 (HC 419-I & II) and the Government's answers, p 462 Back

202   Annex 2-The Committees' questions on the Government's United Kingdom Strategic Export Controls Annual Report 2011 (HC 337) and the Government's answers, p 429 Back

203   Annex 2-The Committees' questions on the Government's United Kingdom Strategic Export Controls Annual Report 2011 (HC 337) and the Government's answers, p 430 Back

204   See: HMRC Press Notice, "Arms to Azerbaijan Dealer Jailed", http://hmrc.presscentre.com/Press-Releases/Arms-to-Azerbaijan-Dealer-Jailed-67d78.aspx; and "Man jailed for Azerbaijan arms bid", The Independent, 20 July 2012 Back

205   See: "Gary Hyde jailed over Nigeria arms shipment," BBC, 5 December 2012; "How an illegal deal for 80,000 weapons led to the downfall of Britain's 'lord of war'", The Observer, 2 December 2012; and "Arms dealer who tried to ship 80,000 guns to Nigeria jailed for seven years", The Telegraph, 5 December 2012 Back

206   Department for Business, Innovation and Skills, Department for International Development, Foreign and Commonwealth Office and Ministry of Defence, United Kingdom Strategic Export Controls Annual Report 2010, HC 1402, page 9; and Department for Business, Innovation and Skills, Department for International Development, Foreign and Commonwealth Office and Ministry of Defence, United Kingdom Strategic Export Controls Annual Report 2011, HC 337, pages 12-13 Back

207   Department for Business, Innovation and Skills, Department for International Development, Foreign and Commonwealth Office and Ministry of Defence, United Kingdom Strategic Export Controls Annual Report 2010, HC 1402, page 8 Back

208   Department for Business, Innovation and Skills, Department for International Development, Foreign and Commonwealth Office and Ministry of Defence, United Kingdom Strategic Export Controls Annual Report 2011, HC 337, page 11 Back

209   Committees on Arms Export Controls, Second Report of Session 2010-12, Scrutiny of Arms Exports (2012): UK Strategic Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, HC 419, para 112 Back

210   Government Response to Committees on Arms Export Controls, First Joint Report of Session 2012-13, Scrutiny of Arms Exports (2012): UK Strategic Export Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, Cm 8441, page 15 Back

211   The Department for Constitutional Affairs, Background briefing on the Crown Dependencies: Jersey, Guernsey and the Isle of Man, June 2006, p 2  Back

212   The Department for Constitutional Affairs, Background briefing on the Crown Dependencies: Jersey, Guernsey and the Isle of Man, June 2006, p 2  Back

213   See: "Boat laden with surface-to-air missiles stopped in Finland on its way to China", The Guardian, 21 December 2011; "Seized Patriot missiles are legal shipment, Germany says", CNN Online, 22 December 2011; and"Ship held after missiles discovery cleared to travel again", The Guardian, 26 December 2011 Back

214   Committees on Arms Export Controls, Second Report of Session 2010-12, Scrutiny of Arms Exports (2012): UK Strategic Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, HC 419, para 117 Back

215   Government Response to Committees on Arms Export Controls, First Joint Report of Session 2012-13, Scrutiny of Arms Exports (2012): UK Strategic Export Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, Cm 8441, page 16 Back

216   Annex 3-The Committee' questions on the Government's Response (Cm 8441) to the Committees' Report 2012 (HC 419-I & II) and the Government's answers, p 464 Back

217   Committees on Arms Export Controls, First Joint Report of Session 2010-12, Scrutiny of Arms Export Controls (2011): UK Strategic Export Controls Annual Report 2009, Quarterly reports for 2010, licensing policy and review of export control legislation, HC 686, para 115 Back

218   Government response to Committees on Arms Export Controls, First Joint Report of Session 2010-12, Scrutiny of Arms Export Controls (2011): UK Strategic Export Controls Annual Report 2009, Quarterly reports for 2010, licensing policy and review of export control legislation, Cm 8079, p 15 Back

219   See HC 419-Ev 63, Letter from the Chairman of Committees on Arms Export Controls to the Foreign Secretary dated 18 July 2011, Annex A. Back

220   See HC 419-Ev 67, Letter from the Foreign Secretary dated 30 September 2011, Annex A, p 11. Back

221   Committees on Arms Export Controls, First Joint Report of Session 2010-12, Scrutiny of Arms Export Controls (2011): UK Strategic Export Controls Annual Report 2009, Quarterly reports for 2010, licensing policy and review of export control legislation, HC 686, para 116 Back

222   Government response to Committees on Arms Export Controls, First Joint Report of Session 2010-12, Scrutiny of Arms Export Controls (2011): UK Strategic Export Controls Annual Report 2009, Quarterly reports for 2010, licensing policy and review of export control legislation, Cm 8079, p 16 Back

223   Committees on Arms Export Controls, Second Report of Session 2010-12, Scrutiny of Arms Exports (2012): UK Strategic Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, HC 419, para 120 Back

224   Government Response to Committees on Arms Export Controls, First Joint Report of Session 2012-13, Scrutiny of Arms Exports (2012): UK Strategic Export Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, Cm 8441, page 16 Back

225   Committees on Arms Export Controls, Second Report of Session 2010-12, Scrutiny of Arms Exports (2012): UK Strategic Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, HC 419, para 122 Back

226   Government Response to Committees on Arms Export Controls, First Joint Report of Session 2012-13, Scrutiny of Arms Exports (2012): UK Strategic Export Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, Cm 8441, pages 16-17 Back

227   Andrew Feinstein, The Shadow World: Inside the Global Arms Trade, London 2011 Back

228   Ev w58 Back

229   Government response to Committees on Arms Export Controls, First Joint Report of Session 2010-12, Scrutiny of Arms Export Controls (2011): UK Strategic Export Controls Annual Report 2009, Quarterly reports for 2010, licensing policy and review of export control legislation, Cm 8079, p 15 Back

230   Committees on Arms Export Controls, Second Report of Session 2010-12, Scrutiny of Arms Exports (2012): UK Strategic Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, HC 419, para 125 Back

231   Government Response to Committees on Arms Export Controls, First Joint Report of Session 2012-13, Scrutiny of Arms Exports (2012): UK Strategic Export Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, Cm 8441, page 17 Back

232   Committees on Arms Export Controls, Second Report of Session 2010-12, Scrutiny of Arms Exports (2012): UK Strategic Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, HC 419, para 127 Back

233   Government Response to Committees on Arms Export Controls, First Joint Report of Session 2012-13, Scrutiny of Arms Exports (2012): UK Strategic Export Controls Annual Report 2010, Quarterly Reports for July to December 2010 and January to September 2011, the Government's Review of arms exports to the Middle East and North Africa, and wider arms control issues, Cm 8441, page 17 Back

234   Annex 3-The Committee' questions on the Government's Response (Cm 8441) to the Committees' Report 2012 (HC 419-I & II) and the Government's answers, p 464 Back


 
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Prepared 17 July 2013